Transfer of Property Act (TPA)
Enforcement of a Charge, and the Charge Against a Bona Fide Transferee Without Notice
A charge is enforced in one way only: by having the property sold, in the manner the Act provides for a simple mortgage. There is no foreclosure, and no right to possession, because the chargeholder has no interest in the property to enlarge or to enjoy. And the charge has one weakness a mortgage does not share. It is not enforceable against a person to whom the property has been transferred for consideration and without notice of it — which matters most for charges arising by operation of law, since those leave nothing on the register for a purchaser to find.
1. How a Charge Is Enforced
Section 100, first paragraph All the provisions of the Act which apply to a simple mortgage apply, so far as may be, to a charge. The consequence is that the chargeholder's remedy is a suit for sale of the property charged, and the decree follows the course of a decree on a simple mortgage under Order 34 of the Code — a preliminary decree fixing the amount and a date for payment, and a final decree for sale on default. |
The remedy | Available to a chargeholder? |
|---|---|
Sale of the charged property | Yes — the only remedy the charge itself gives |
Foreclosure | No. Foreclosure extinguishes a right of redemption; the chargeholder has no interest in the property, and the owner has no equity of redemption to extinguish |
Possession | No. The charge fastens on the property for payment; it gives no right to hold or enjoy it |
A personal decree | Only where there is an independent personal liability for the money; the charge secures the debt, it does not create it |
Sale without the intervention of the court | No. Section 69 is confined to the mortgages it names |
2. Procedure and Limitation
- The suit is one for sale, and all persons interested in the property, including subsequent encumbrancers, ought to be made parties so that the decree binds them.
- The proceeds are applied in the order set by Order 34 Rule 13 — expenses of the sale, prior encumbrances, interest and costs, principal, and the residue to those interested in the property.
- Limitation runs on the money charged. A suit to enforce payment of money charged upon immoveable property is governed by the Limitation Act, and the chargeholder who sleeps on his claim loses the security with it.
- Priority follows section 48, so a charge ranks with other securities according to the date on which it was created — subject always to the rule about a purchaser without notice.
3. The Charge and the Purchaser Without Notice
Section 100, second paragraph '… save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.' |
The transferee | Position |
|---|---|
For consideration and without notice | The charge cannot be enforced against the property in his hands. The chargeholder is left to his personal remedy against the person liable, if he has one |
For consideration, but with notice | He takes subject to the charge. Notice includes constructive and imputed notice under section 3 — registration of an instrument creating the charge, and the possession of a claimant, are the usual sources |
Gratuitously, with or without notice | He takes subject to the charge. He has given nothing, and has no equity to set up |
A purchaser at a court sale | His position depends on what was sold and on whether the charge was brought to the notice of the court and the bidders |
Where a statute expressly provides otherwise | A statutory charge declared to be a first charge binding on the property notwithstanding any transfer will be enforced according to its own terms |
4. Why This Protection Exists
- A charge may leave no public trace. Charges arising by operation of law — a seller's charge for unpaid price, a maintenance charge under a decree, a co-mortgagor's charge under section 95 — are created by no instrument and appear on no register.
- A purchaser cannot guard against what he cannot discover. Having paid value and made the enquiries a prudent buyer makes, he is protected.
- The chargeholder is not left without recourse. His claim against the person liable survives; what he loses is the security, and he loses it because he did not put the world on notice of it.
- And a mortgagee is in a stronger position for the same reason. A mortgage transfers an interest and must ordinarily be registered, so a purchaser is fixed with notice of it.
5. What Counts as Notice Here
Source of notice | Effect |
|---|---|
Actual knowledge | The transferee takes subject to the charge |
Registration — Explanation I to section 3 | Where the charge was created by a compulsorily registrable instrument, duly registered and correctly indexed, the transferee has notice from the date of registration |
Possession — Explanation II | Where the person entitled to the charge, or somebody claiming under him, is in possession, the transferee has notice of that person's title |
Wilful abstention or gross negligence | A purchaser who avoided the enquiry a prudent buyer would make is fixed with what it would have revealed |
The agent's knowledge — Explanation III | Imputed to the principal, in the circumstances the Explanation provides |
6. Landmark Cases
📖 Ahmedabad Municipal Corporation v. Haji Abdulgafur Haji Hussenbhai, (1971) 1 SCC 757 Held: A statutory charge for municipal property tax was sought to be enforced against a person who had purchased the property for value and without notice of the arrears. The Court held that, in the absence of an express statutory provision making the charge enforceable against such a transferee, the protection in section 100 applies, and the charge could not be enforced against a bona fide purchaser for value without notice. Ratio: A statutory charge does not bind a purchaser for value without notice unless the statute expressly says so. |
📖 Dattatreya Shanker Mote v. Anand Chintaman Datar, (1974) 2 SCC 799 Held: A charge creates no interest in the property but a right to payment out of the property specified. The provisions applicable to a simple mortgage apply to it so far as they can, which gives the chargeholder a remedy by sale, and the machinery of the mortgage chapter is available accordingly. Ratio: The chargeholder's remedy is sale, borrowed from the law of the simple mortgage. |
7. Related Topics and Provisions
- Charges, Section 100 — the definition, essentials and the two sources of a charge
- Notice under Section 3 — the whole of the second paragraph turns on it
- Transferee With Notice vs Transferee for Consideration Without Notice — the same formula across the Act
- Application of the Proceeds of a Sale — Order 34 Rule 13
- Sections 55(4)(b), 55(6)(a) and 95, TPA — the principal statutory charges
- Section 67, TPA — the remedy of sale, borrowed for a charge